tv Nightly Business Report PBS April 28, 2011 6:30pm-7:00pm EDT
>> susie: the economy slowed to a crawl during the first three months of the year. from business spending to housing, nearly every sector was sluggish. >> tom: one thing that was up? inflation! is today's weaker-than-expected g.d.p. report old news or a sign of a stalled economic recovery? you're watching "nightly business report" for thursday, april 28. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening, everyone. the u.s. economy hit the brakes during the first three months of the year. and tom, it wasn't surprising, that's when gasoline and food prices started climbing. >> tom: susie, less government spending was also a drag on the economy. the gross domestic product rose 1.8% in the first quarter, according to the commerce department. now that's a significant slowdown from the previous quarter, when the economy was chugging right along with growth over 3%. >> susie: the slowdown is a setback for the recovering economy, but as darren gersh reports, it's not to last.
>> reporter: the year started off slowly with the economy dragged down by a sharp drop in construction. winter weather is one reason spending to build new factories and office buildings tumbled 22%. new home construction fell too. and government cutbacks didn't help either. defense spending down was 12%. economist stephen fuller says the economy is clearly not firing on all cylinders. >> the engine isn't running full speed yet, and as it begins to pick up speed in the private sector, the public sector is pulling back, and so those two countervailing forces are going to result in a very moderate growth rate. so if we do better than 3% in the next three years, it will be quite a success story. >> reporter: and those rising prices for food and energy also dragged down spending, though fuller expects consumers will find ways to adapt. >> with the internet and more readily available information on pricing than we had a generation
ago, certainly, people are much smarter shoppers and they spend their money, spread it around, and they adjust to higher prices. >> reporter: some economists believe the weakness in today's g.d.p. report is a statistical fluke. lou crandall at research firm wrightson icap says other economic indicators point to stronger growth. >> i think that the strong profit season that we are seeing in the stock market over the past couple of weeks really does reflect that fact that business conditions are very good. and that's essential to maintaining a stronger hiring pace. >> reporter: but there are early signs of trouble in hiring. unemployment claims topped 400,000 for a third week in a row. >> this is one of those periods of vulnerability where you expect to see a certain number of negative signals mixed in with the economic data, and you just watch very carefully to make sure that they don't start to predominate. >> reporter: the federal reserve and most economists think this period of slow growth and high
prices will prove transitory. meaning, we hope this weakness is already behind us. darren gersh, "nightly business report," washington. >> tom: here are the stories in tonight's n.b.r. newswheel: stocks shrugged off that g.d.p. news, extended their multi-year highs. the dow rose 72 points, the nasdaq added 2.5 and the s&p 500 up nearly five points. big board volume steady. precious metals shined too, with gold and silver also hitting new highs. gold settled at $1,531 an ounce while silver rose to more than $47.5. >> susie: warren buffet will face criticism and tough questions this weekend at berkshire hathaway's shareholder meeting. this man, david sokol, is at the center of it all. he was once considered buffett's heir apparent. but a report out yesterday by berkshire's audit committee said
sokol misled the firm about personal stock purchases of lubrizol stock while encouraging buffett to buy the company. the report also said sokol broke berkshire's insider trading and ethics policies. sokol resigned in march. joining us for a preview of what to expect at this weekend's meeting, buffett's official biographer-- alice shroeder, author of "snowball: warren buffett and the business of life." great to see you. >> hi, susie. >> this saturday will be warren's first time speaking publicly about the whole david sokol affair. what do you think he will say to shareholders? >> i think he will try to reassure him. they're coming to omaha armed request questions and it's a friendly audience. i think he will take advantage of that. >> it's been confusing because for years warren buffett has been praising david sokol. now he's blaming him, distancing himself from him. is there information about david sokol that we're not being told?
>> that's the big question. people would like to understand, what was buffett's judgment and what went wrong? because he trusted david sokol and clearly that was a mistake. he was the wrong guy. >> right. is this whole situation, if you look at the big picture, is this whole situation about insider trading? or is this about the way buffett runs his company? is it about buffett as a manager? >> the big picture is buffett as a manager, his practice of delegating so much and relying so much on people he's personally chosen to the point you get a situation like this, that blows up in his face. >> where was the board of directors in all of this? >> it sounds like they were a little bit late to the party. it sounds like they found out about sokol's resignation on the eve of it happening and now, the audit committee is coming in. the report they put out is only preliminary, so i don't think they're fully caught up, yet. >> you were a morgan stanley
analyst for many years covering berkshire stock before you started writing books. tell us about your views on the berkshire stock. will this whole situation hurt the stock? >> berkshire's been cheap for a while, and it is probably going to get cheaper unless something dramatic happens because what used to be called the buffett premium is turning into a buffett discount as warren gets older and people are fearful of the future. unless buffett comes out and lays out some plans for how he's going to keep the company growing and who his successor might be, i envision that the stock could continue to be under pressure. >> what if buffett did end the mystery about succession and he did name his successor? would this actually work for or against the stock? >> i think it would help the stock. the uncertainty is part of the drag. it's bothering people a lot because they have no way of assessing the future, and they don't have confidence, any more, that the choice will be good, after sokol. >> it will be interesting to see
what happens this weekend. thank you so much, alice, for giving us a preview. the author of warren buffett's biography, "snowball." i'm heading to omaha this weekend for the berkshire hathaway meeting. i'll interview warren buffett and get his take on the david sokol situation, as well as buffett's outlook for berkshire and the economy. my report airs right here on monday night, and i'll be tweeting throughout the shareholders' meeting. you can catch my personal feed, @sgharibnbr. >> tom: the biggest nuclear power plant operator wants to get bigger. electric utility exelon has offered $7.9 billion for constellation energy. the combined utility would have 22 reactors. we'll have more on this power deal in "market focus." but it shows the global appetite for power continues growing, and nuclear likely will continue to be one source.
that's the subject of a story in "bloomberg markets magazine" that is on newsstands now. we spoke with senior writer john lippert about smaller nuclear reactors, beginning with how they use passive safety features instead of the current designs using active safety like water pumps and generators. >> it's important to remember, after the tsunami, what failed is the back-up systems, and so nowadays, anybody talking about a new nuclear reactor is talking about passive safety, so high school science, right -- hot water rises, cold water sinks and you use that just sort of natural biology or whatever you call it -- physics -- and you get a flow through the reactor that's sustainable even if there is a shutdown. >> ed: you don't need any back-up power. >> that's right. >> nuclear power comes from small reactors you describe in the piece. one disadvantage is that it has less power but they are less expensive. are these less expensive than
the large reactor questions we have now? >> let's go back. you said appetite for power is growing. it's not just growing, it's going to double over the next couple decades, and nuclear power is important because of global warming, right? it's virtually emissions free. that's a big deal. and the big reason we're not implementing more of the new designs like we just talked about -- passive safety -- is not because of bad technology, it's because of bad economics. so a new reactor like the one they're building in georgia, $6 billion, it takes 10 or 12 years to get the thing permitted and built -- and during that time, for the most part, in most states, you can't earn any money for that whole 10 or 12-year period. your money is tied up. >> right. >> with the smaller reactors you're talking about maybe $200 million, much less permitting and -- actually, not less permitting but less construction time so the idea is you can maybe access some of these new technologies without putting your whole company at risk.
>> let's talk about some of the companies that are at play with these small reactors. among them, new scale power, babcock and wilcox. hyperion. which of these is closest to bringing one of these power plants to market? >> the answer is easy. you can't go to the n.r.c. -- the nuclear regulatory commission" to get your design certified without a customer. so far, of all the companies out there in the united states, the only company with a customer is babcock & wilcox. their customer is the tennessee valley authority, a big utility in tennessee and they're saying they may build as many as six of the babcock reactors but new scale out of oregon state, in corvallis, they hope to have a customer lined up soon and go to the n.r.c. next year, so there is a lot of people -- argentina, korea, japan, russia -- there is a lot of people around the world looking at this. the international atomic energy
agency, part of the u.n. said there are as many as 36 of these reactors could be built by 25 -- the small ones. >> could be a big market and investors paying attention. our guest this evening is john lippert, in chicago with bloomberg markets magazine. >> susie: there was a lot of action here at the new york stock exchange, even before the opening bell rang today. n.y.s.e. management got grilled by shareholders about the exchange's refusal to consider a
joint merger offer from nasdaq and the intercontinental exchange. at the big board's annual meeting, c.e.o. duncan niederauer defended the n.y.s.e.'s planned deal with germany's deutsche bourse. erika miller was at the meeting and has more on the controversy. >> reporter: shareholders arrived early in the morning at the new york stock exchange armed with questions. many came to find out why the n.y.s.e. board will not consider a bid from the nasdaq and i.c.e. exchange that would pay shareholders more money. in a meeting closed to cameras, c.e.o. duncan niederauer answered them, arguing a merger with deutsche bourse will provide better long-term returns and is more likely to be approved by regulators. that won the support of irwin herling, whose family owns more than 150,000 shares. >> there's no benefit going forward for the shareholders getting involved with nasdaq. >> reporter: you own a fair number of shares, you are not tempted by a higher dollar offer? >> it's all short term. it's taxable.
>> reporter: in the other camp is kenneth steiner, who owns 1,000 shares. he believes the deutsche bourse offer is too low. >> my prediction is that you'll see a higher price before the deal is actually voted upon, because i think it's doubtful as of today that it would pass. >> reporter: the question now is whether nasdaq will take its buyout offer directly to shareholders. on the floor of the new york stock exchange, traders like jonathan corpina are pulling for deutsche bourse. >> i think we'll continue to get more european listings wanting to list over here in the united states, and when they do they will directly come to new york stock exchange. >> reporter: he has no qualms about merging with a german company. although, like many americans, he hopes n.y.s.e. will be a part of the exchange's new name. >> anytime anyone talks about wall street, no matter what the story is, you see a picture of the new york stock exchange on the cover of the newspaper or on the news show. >> reporter: n.y.s.e. shareholders will vote on the deutsche bourse merger july 7.
even if a deal is approved, it is expected to take far longer for regulators in europe and the u.s. to approve the combination. erika miller, "nightly business report," new york. >> tom: stocks drifted higher, extending their post-recession highs. but after the close, a couple of tech giants were falling. let's take a look at tonight's "market focus." we are still in the thick of earnings season, and there haven't been a lot of high- profile disappointments. but after the close, research in motion warned of slower smartphone sales, dropping its earnings outlook. >> rimm shares have seen a rimm shares have seen a series of disappointing earnings outlooks over the past year. which helps explain the volatility we've seen. while shares gained almost 2% during the regular session, they were down about 10% after the bell from this closing price. if that selling pressure holds,
it will take rimm down to its lowest price since october. its new earnings outlook is about 11% lower than first anticipated. software giant microsoft meantime released these results after the close. earnings came in right on target 56 cents per share, and revenues were slightly ahead of estimates. four of its five business units saw higher sales. microsoft shares have been trying to rally this month after really sinking since the first of the year. after its earnings released, shares erased all of today's 1.3% gain, trading down about 2%. clearly one to watch tomorrow. leading the market sectors during the regular session was the financial sector. a trio of insurance stocks topped financials. allstate is less than $1 away from a new 52-week high with today's 5.7% rally. earnings jumped, with catastrophic losses plunging. aflac gained 5% after better- than-expected earnings. shares tonight are at their highest price since the japan
disaster. japan is aflac's biggest market. and life insurance lincoln national rose 4%. on the back of good earnings. consumer staple stocks also were strong thanks to earnings. mead johnson nutrition is at a new high tonight. pepsi and colgate palmolive added about 2.5% each. pepsi plans more price increases this summer. colgate warned margins will be squeezed by higher commodity prices out-pacing higher selling prices. now while consumer companies are looking to rise prices, internet content services firm akamai is getting hit due to lowering prices for some customers. we're looking at the past 90 sessions. the stock fell 15% today, back to its low in march. we mentioned the big power deal earlier in the program. exelon wants to buy constellation energy for almost $8 billion in stock. in a sign of a vote of confidence, the buyer, exelon saw its shares rally 1.7% on strong volume. it sits at a six-week high.
for exelon. the target, constellation, jumped almost 6%. not quite as much as expected. the deal values constellation within pennies of this closing price. and that's tonight's "market focus." >> tom: the very first baby boomers are turning 65 years old this year, and many of them expect to take their money with them. keith banks is the president of u.s. trust, the private wealth management arm of bank of america merrill lynch. he joins us tonight from new
york. keith, welcome to "nightly business report." nice to see you. >> good to be here. >> as baby boomers begin their retirement years, how big is the collective inheritance over the next generation? >> we're talking massive numbers. if you look between 1998 and 2052, which is the timetable, we're talking about $41 trillion of wealth that will pass. the largest amount ever. >> by far bigger than any economy on the face of the globe. you surveyed wealthy baby boomers and here is what you found. 51% say they will not pass on their riches to their kids. they won't do it. why not? >> there is a couple of things to think about. number one, we're finding a real dichotomy, right now, between clients we speak to at u.s. trust and the respondents that were through the survey, and i think it really comes down to the fact that these baby boomers earned their wealth themselves,
there are consequences -- 50% said there are consequences associated with the wealth creation -- impact on family, health, et cetera. they're people who are going to live probably 25-30 years beyond retirement. and so they're thinking about making sure there is enough wealth for them to live those years and get a return on that hard-earned investment that they made of their own time. >> thinking of themselves as they ought to. baby boomers are the first generation to go through their entire working career with the safety nets of social security and medicare. do you think that plays a role with their decision to spend the money as opposed to try to pass it on? >> tom, we really didn't get into specifically those issues with the respondents, with the survey participants but let me share numbers that i think you would find interesting. 50% of the survey respondents said they did not believe their children would accumulate the same amount of wealth that they
did. they also told us -- 66% of them told us that they felt that their children were not prepared to inherit whatever wealth comes their way and yet 50% of them -- 50% have not spoken with their advisors about ways to prepare their children to get that wealth, yet 98% talk to their advisor about investment performance. the focus is too narrow on the part of the individual and too narrow on the part of the advisor. >> keith, many of those you spoke to don't actually plan on retiring in the classic sense that we think about kicking your heels up and not going in to work each morning -- in fact, about half plan on continuing their work. what are the implications, do you think, for the labor market? we've seen job growth begin to pick up but still seven million americans are out of work today compared to just three years ago and if quote unquote retired baby boomers continue to work, that doesn't necessarily speak well for future generations, does it? >> it's an interesting point, tom, because what you will see
is many of these folks staying in the labor force a lot longer. one of the big concerns was, as people retired there would be less and less people working and fewer and fewer people supporting them. we think that will balance out because of the statistics you just shared. >> fair enough, keith, we appreciate you sharing the survey results with us. we'll have more coming up later in the program. our guest is keith banks, president of u.s. trust. >> susie: here's what we're watching for tomorrow: quarterly results from caterpillar, chevron and merck, along with the personal income and spending report for march. james paulsen of wells capital management is our "market monitor." we'll ask him if the wall street saying, "sell in may and walk away," will apply next month. chrysler is about to write big checks to the governments of the u.s. and canada, paying back the money it borrowed in a bankruptcy bailout. the final amount will be $7.5
billion, including interest. to raise the cash, the automaker will take out bank loans and sell bonds. chrysler's been trying to get out from under the debt for months. and the move saves millions of dollars in interest payments and gets chrysler positioned to go public again. >> tom: mcdonald's has 62,000 new employees. last tuesday the fast food chain opened the doors to anyone who wanted a job and a million people applied. the original goal was to hire 50,000 people, but mcdonalds says the job pool was so good, it ended up bringing an additional 12,000 on board. about 1,000 of the new workers will have management jobs; the rest in food service.
>> susie: earlier, we told you about baby boomers spending their wealth instead of leaving it to heirs. but some people of that generation aren't flush with cash. because of that, they're working longer than they planned. tonight's commentator looks for a silver lining in that dark cloud. he's todd buchholz, author of "rush: why you need and love the rat race". >> tick-toc. tick-toc. every minute about seven baby boomers turn 65. boomers love that 1970s song, "don't stop thinking about tomorrow." well, tomorrow is starting to look kind of scary, considering the national debt and medicare
and social security obligations. if we had to print all our i.o.u.s on paper, we might run out of trees. can we pull any good news from the story? first, retirement programs cost more because we're living longer. when franklin roosevelt introduced the social security retirement age at 65, the average 65-year-old was dead. as recently as 1900, life expectancy was in the 40s! now, we're a country with millions of 90-somethings. our retirement age must be adjusted to reflect that. second, work is good for us. early retirement kills brain cells. in countries where people quit early, they lose i.q. points. in france, people imagine they'll spend their days eating pastries at cafes. instead, they may lose the ability to find the café or figure out how to pay when the check comes. in america, our check is coming due, and we better face up to this fact: we've got more work to do. i'm todd buchholz.
>> susie: that's "nightly business report" for thursday, april 28. i'm susie gharib. good night everyone and good night to you too, tom. >> tom: good night susie. i'm tom hudson. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org